<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
(Mark one)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 1999 or
---------------------------------------------
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from_____________________to___________________________
Commission file number 0-20103
----------------------------------------------------------
Wells Real Estate Fund IV, L.P.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-1915128
---------------------------- ----------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3885 Holcomb Bridge Road, Norcross, Georgia 30092
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (770) 449-7800
------------------------------
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
<PAGE>
Form 10-Q
---------
Wells Real Estate Fund IV, L.P.
-------------------------------
INDEX
-----
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - March 31, 1999
and December 31, 1998............................................... 3
Statements of Income for the Three Months
Ended March 31, 1999 and 1998....................................... 4
Statement of Partners' Capital for the Year Ended
December 31, 1998 and the Three Months Ended
March 31, 1999...................................................... 5
Statements of Cash Flows for the Three
Months Ended March 31, 1999 and 1998................................ 6
Condensed Notes to Financial Statements............................. 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations.......................................................... 8
PART II. OTHER INFORMATION.................................................15
</TABLE>
2
<PAGE>
WELLS REAL ESTATE FUND IV, L.P.
(A Georgia Public Limited Partnership)
Balance Sheets
<TABLE>
<CAPTION>
Assets March 31, 1999 December 31, 1998
------ -------------- -----------------
<S> <C> <C>
Investment in joint ventures (Note 2) $ 9,767,512 $ 9,846,448
Cash and cash equivalents 108,077 102,960
Due from affiliates 263,395 241,930
----------- -----------
Total assets $10,138,984 $10,191,338
=========== ===========
Liabilities and Partners' Capital
---------------------------------
Liabilities:
Accounts payable and accrued
expenses $ 50,680 $ 4,244
Partnership distributions payable 261,965 248,091
----------- -----------
Total liabilities 312,645 252,335
----------- -----------
Partners' capital:
Limited partners
Class A - 1,322,909 units outstanding 9,826,339 9,939,003
Class B - 38,551 units outstanding 0 0
----------- -----------
Total partners' capital 9,826,339 9,939,003
----------- -----------
Total liabilities and $10,138,984 $10,191,338
partners' capital =========== ===========
</TABLE>
See accompanying condensed notes to financial statements.
3
<PAGE>
WELLS REAL ESTATE FUND IV, L.P.
(a Georgia Public Limited Partnership)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
------------------
March 31, 1999 March 31, 1998
-------------- --------------
<S> <C> <C>
Revenues:
Interest income $ 1,627 $ 2,449
Equity in income of joint ventures
(Note 2) 175,731 144,522
----------- -----------
177,358 146,971
----------- -----------
Expenses:
Legal and accounting 9,240 4,771
Computer costs 2,820 1,986
Partnership administration 16,250 8,366
----------- -----------
28,310 15,123
----------- -----------
Net income $ 149,048 $ 131,848
=========== ===========
Net income allocated to Class A Limited
Partners $ 149,048 $ 131,849
Net loss allocated to Class B Limited
Partners $ 0 $ 0
Net income per Class A Limited Partner
Unit $ 0.11 $ 0.10
Net loss per Class B Limited Partner
Unit $ 0 $ 0
Cash distribution per Class A Limited
Partner Unit $ 0.20 $ 0.17
</TABLE>
See accompanying condensed notes to financial statements.
4
<PAGE>
WELLS REAL ESTATE FUND IV, L.P.
(A Georgia Public Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEAR ENDED DECEMBER 31, 1998
AND THREE MONTHS ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
Limited Partners
--------------------------------------------
Class A Class B Total
------- ------- Partners'
Units Amount Units Amount Capital
----- ------ ----- ------ -------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1997 1,322,909 $10,334,768 38,551 $0 $10,334,768
Net income 0 574,034 0 0 574,034
Partnership distributions 0 (969,799) 0 0 (969,799)
--------- ----------- ------ -- -----------
BALANCE, December 31, 1998 1,322,909 9,939,003 38,551 0 9,939,003
Net income 0 149,048 0 0 149,048
Partnership distributions 0 (261,712) 0 0 (261,712)
--------- ----------- ------ -- -----------
BALANCE, March 31, 1999 1,322,909 $ 9,826,339 38,551 $0 $ 9,826,339
========= =========== ====== == ===========
</TABLE>
See accompanying condensed notes to financial statements.
5
<PAGE>
WELLS REAL ESTATE FUND IV, L.P.
(A Georgia Public Limited Partnership)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
------------------
March 31, 1999 March 31, 1998
-------------- --------------
<S> <C> <C>
Cash flow from operating activities:
Net income $ 149,048 $ 131,849
--------- ---------
Adjustments to reconcile net income to net cash
used in operating activities:
Equity in income of joint ventures (175,731) (144,523)
Changes in assets and liabilities:
Accounts payable 46,436 (89)
--------- ---------
Total Adjustments (129,295) (144,612)
--------- ---------
Net cash provided by (used in)
operating activities 19,753 (12,763)
--------- ---------
Cash flow from investing activities:
Investment in joint ventures (33,727) 0
Distributions received from joint ventures 266,930 237,708
--------- ---------
Net cash provided by investing activities 233,203 237,708
--------- ---------
Cash flow from in financing activities:
Partnership distributions paid (247,839) (243,193)
--------- ---------
Net increase (decrease) in cash and cash
equivalents 5,117 (18,248)
Cash and cash equivalents, beginning of year 102,960 163,903
--------- ---------
Cash and cash equivalents, end of period $ 108,077 $ 145,655
========= =========
</TABLE>
See accompanying condensed notes to financial statements.
6
<PAGE>
WELLS REAL ESTATE FUND IV, L.P.
(A Georgia Public Limited Partnership)
Condensed Notes to Financial Statements
March 31, 1999
(1) Summary of Significant Accounting Policies
------------------------------------------
(a) General
-------
Wells Real Estate Fund IV, L.P. (the "Partnership") is a Georgia public
limited partnership having Leo F. Wells, III and Wells Partners, L.P., as
General Partners. The Partnership was formed on October 25, 1990, for the
purpose of acquiring, developing, constructing, owning, operating, improving,
leasing and otherwise managing for investment purposes income-producing
commercial properties.
On March 4, 1991, the Partnership commenced an offering of up to $25,000,000
of Class A or Class B limited partnership units ($10.00 per unit) pursuant to
a Registration Statement on Form S-11 under the Securities Act of 1933. The
Partnership did not commence active operations until it received and accepted
subscriptions for 125,000 units which occurred on May 13, 1991. The offering
was terminated on February 29, 1992, at which time the Partnership had
obtained total contributions of $13,614,652 representing subscriptions from
1,285 Limited Partners.
The Partnership owns interests in properties through its equity ownership in
the following two joint ventures: (i) Fund III and Fund IV Associates, a joint
venture between the Partnership and Wells Real Estate Fund III, L.P. ( the
"Fund III - Fund IV Joint Venture"); and (ii) Fund IV and Fund V Associates, a
joint venture between the Partnership and Wells Real Estate Fund V, L.P. (the
"Fund IV - Fund V Joint Venture").
As of March 31, 1999, the Partnership owned interests in the following
properties through its ownership of the foregoing joint ventures: (i) a retail
shopping center located in Stockbridge, Georgia, southeast of Atlanta (the
"Stockbridge Village Shopping Center"), which is owned by the Fund III - Fund
IV Joint Venture; (ii) a two-story office building located in Richmond,
Virginia (the "G.E. Building/Richmond"), which is owned by the Fund III - Fund
IV Joint Venture; (iii) two substantially identical two-story office buildings
located in Clayton County, Georgia (the "Medical Center Project"), which are
owned by the Fund IV - Fund V Joint Venture, and (iv) a four-story office
building located in Jacksonville, Florida (the "IBM Jacksonville Project"),
which is owned by the Fund IV - Fund V Joint Venture. All of the foregoing
properties were acquired on an all cash basis. For further information
regarding these joint ventures and properties, refer to the Partnership's Form
10-K for the year ended December 31, 1998.
(b) Basis of Presentation
---------------------
The financial statements of the Partnership have been prepared in accordance
with instructions to Form 10-Q and do not include all of the information and
footnotes required by generally accepted accounting
7
<PAGE>
principles for complete financial statements. These quarterly statements have
not been examined by independent accountants, but in the opinion of the
General Partners, the statements for the unaudited interim periods presented
include all adjustments, which are of a normal and recurring nature, necessary
to present a fair presentation of the results for such periods. For further
information, refer to the financial statements and footnotes included in the
Partnership's Form 10-K for the year ended December 31, 1998.
(2) Investment in Joint Ventures
----------------------------
The Partnership owns interests in four properties as of March 31, 1999,
through ownership in two joint ventures. The Partnership does not have
control over the operations of the joint ventures; however, it does exercise
significant influence. Accordingly, investment in joint ventures is recorded
on the equity method. For further information, refer to Form 10-K of the
Partnership for the year ended December 31, 1998.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
The following discussion and analysis should be read in conjunction with the
accompanying financial statements of the Partnership and notes thereto. This
Report contains forward-looking statements, within the meaning of Section 27A
of the Securities Act of 1933 and 21E of the Securities Exchange Act of 1934,
including discussion and analysis of the financial condition of the
Partnership, anticipated capital expenditures required to complete certain
projects, amounts of cash distributions anticipated to be distributed to
Limited Partners in the future and certain other matters. Readers of this
Report should be aware that there are various factors that could cause actual
results to differ materially from any forward-looking statement made in the
Report, which include construction costs which may exceed estimates,
construction delays, lease-up risks, inability to obtain new tenants upon the
expiration of existing leases, and the potential need to fund tenant
improvements or other capital expenditures out of operating cash flow.
Results of Operations and Changes in Financial Conditions
---------------------------------------------------------
(a) General
-----------
Gross revenues of the Partnership were $177,358 for the three months ended
March 31, 1999, and $146,971 for the three months ended March 31, 1998, with
an occupancy rate of 97% for 1999 and 95% for 1998. This increase in gross
revenues was due primarily to a increased renewal rental rate. Expenses
increased from $15,123 for the three months ended March 31, 1998 to $28,310
for the three months ended March 31, 1999, due to increased legal and
accounting expenses, as well as, an increase in partnership administrative
expense. The increase in revenues for 1999, more than compensated for the
increase in expenses and as a result, net income increased for the three
months ended March 31, 1999, as compared to the same period ended March 31,
1998.
8
<PAGE>
Cash and cash equivalents decreased at the end of the period due to an
additional investment in joint ventures for the period ending March 31, 1998.
The Partnership distributes cash available less reserves, and as a result, the
level of cash remains relatively stable.
The Partnership made cash distributions to the Limited Partners holding Class
A Units of $.20 per Unit for the three months ended March 31, 1999, as
compared to distributions of $.17 per Class A Unit for the three months ended
March 31, 1998. No cash distributions were made to the Limited Partners
holding Class B Units or to the General Partners. The Partnership's
distributions paid and payable through the first quarter of 1999 have been
paid from net cash from operations and from distributions received from its
equity investment in joint ventures, and the Partnership anticipates that
distributions will continue to be paid on a quarterly basis from such sources.
The Partnership is unaware of any known demands, commitments, events or
capital expenditures other than that which is required from the normal
operations of its properties that will result in the Partnership's liquidity
increasing or decreasing in any material way. The Partnership expects to meet
liquidity requirements and budget demands through cash flow from operations.
Year 2000
---------
The Partnership is presently reviewing the potential impact of Year 2000
compliance issues on its information systems and business operations. A full
assessment of Year 2000 compliance issues was begun in late 1997 and was
completed by March 31, 1999. Renovations and replacements of equipment have
been and are being made as warranted. The costs incurred by the Partnership
and its affiliates thus far for renovations and replacements have been
immaterial. Some testing of systems has begun and all testing is expected to
be complete by June 30, 1999.
As to the status of the Partnerships' information technology systems, it is
presently believed that all major systems and software packages with the
exception of the accounting and property management package are Year 2000
compliant. The Partnerships' affiliated entities are purchasing the upgrade
for the accounting and property management package system; however, it is not
slated to be available until the end of the second quarter of 1999. At the
present time, it is believed that all non-major information technology systems
are Year 2000 compliant. The cost to upgrade any noncompliant systems is
believed to be immaterial.
The Partnership is in the process of confirming with the Partnership's
vendors, including third-party service providers such as banks, that their
systems will be Year 2000 compliant. Based on the information received thus
far, the primary third-party service providers with which the Partnership has
relationships have confirmed their Year 2000 readiness.
The Partnership relies on computers and operating systems provided by
equipment manufacturers, and also on application software designed for use
with its accounting, property management and investment portfolio tracking.
The Partnership has preliminary determined that any costs, problems or
uncertainties associated with the potential consequences of Year 2000 issues
are not expected to have a material impact on the future operations or
financial condition of the Partnership. The Partnership will perform due
9
<PAGE>
diligence as to the Year 2000 readiness of each property owned by the
Partnership and each property contemplated for purchase by the Partnership.
The Partnership's reliance on embedded computer systems (i.e.
microcontrollers) is limited to facilities related matters, such as office
security systems and environmental control systems.
The Partnership is currently formulating contingency plans to cover any areas
of concern. Alternate means of operating the business are being developed in
the unlikely circumstance that the computer and phone systems are rendered
inoperable. An off-site facility from which the Partnership could operate is
being sought as well as alternate means of communication with key third-party
vendors. A written plan is being developed for testing and dispensation to
each staff member of the General Partner of the Partnership.
Management believes that the Partnership's risk of Year 2000 problems is
minimal. In the unlikely event there is a problem, the worst case scenarios
would include the risks that the elevator or security systems within the
Partnership's properties would fail or the key third-party vendors upon which
the Partnership relies would be unable to provide accurate investor
information. In the event that the elevator shuts down, the Partnership has
devised a plan for each building whereby the tenants will use the stairs until
the elevators are fixed. In the event that the security system shuts down, the
Partnership has devised a plan for each building to hire temporary on-site
security guards. In the event that a third-party vendor has Year 2000 problems
relating to investor information, the Partnership intends to perform a full
system back-up of all investor information as of December 31, 1999, so that
the Partnership will have accurate hard-copy investor information.
10
<PAGE>
Property Operations
-------------------
As of March 31, 1999, the Partnership owned interests in the following
properties through joint ventures:
IBM Jacksonville /Fund IV - Fund V Joint Venture
------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended
------------------
March 31, 1999 March 31, 1998
-------------- --------------
<S> <C> <C>
Revenues:
Rental Income $364,385 $365,992
-------- --------
Expenses:
Depreciation 79,524 79,524
Management & leasing expenses 49,785 46,676
Other operating expenses 114,977 105,360
-------- --------
244,286 231,560
-------- --------
Net income $120,099 $134,432
======== ========
Occupied % 93.5% 100%
Partnership Ownership % in the
Fund IV - Fund V Joint Venture 37.6% 37.6%
Cash Distribution to Partnership $ 82,224 $ 75,214
Net Income Allocated to the
Partnership $ 45,127 $ 50,594
</TABLE>
Rental income for the IBM Jacksonville Property remained relatively stable
in 1999, as compared to 1998 figures. Operating expenses increased in
1999 due to increased management and leasing expenses as well as an
increase in the office building/grounds expense category. Cash
distributions increased for 1999 over 1998. The Partnership and Wells Fund
V contributed cash fundings to the Joint Venture for tenant improvements in
proportion to their ownership interests and therefore, this did not affect
the Partnership's ownership interest in the Fund IV - Fund V Joint Venture.
11
<PAGE>
The Medical Center Property/Fund IV - Fund V Joint Venture
- ----------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended
------------------
March 31, 1999 March 31, 1998
-------------- --------------
<S> <C> <C>
Revenues:
Rental Income $144,578 $117,327
Interest Income 575 1,947
-------- --------
145,153 119,274
-------- --------
Expenses:
Depreciation 44,524 44,524
Management & leasing expenses 17,773 14,796
Other operating expenses 45,404 47,676
-------- --------
107,701 106,996
-------- --------
Net income $ 37,452 $ 12,278
======== ========
Occupied % 92% 81%
Partnership Ownership %
Fund IV - Fund V Joint Venture 37.6% 37.6%
Cash Distribution to Partnership $ 27,490 $ 24,142
Net income allocated to the Partnership $ 14,073 $ 4,621
</TABLE>
Rental income increased in 1999, over 1998, due primarily to an increase in
the occupancy level of the property. Operating expenses remained
relatively stable in 1999, as compared to 1998. Cash distributions
increased slightly over the 1998 figures. The Partnership and Wells Fund V
contributed cash fundings to the Joint Venture for construction in
proportion to their ownership interests, and therefore, this did not affect
the Partnership's ownership interest in the Fund IV - Fund V Joint Venture.
12
<PAGE>
The Stockbridge Village Shopping Center / Fund III - Fund IV Joint Venture
- --------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended
------------------
March 31, 1999 March 31, 1998
-------------- --------------
<S> <C> <C>
Revenues:
Rental Income $325,170 $285,364
Interest Income 3,500 1,965
-------- --------
328,670 287,329
-------- --------
Expenses:
Depreciation 88,184 84,747
Management & leasing expenses 33,184 28,463
Other operating expenses 17,338 21,708
-------- --------
138,706 134,918
-------- --------
Net income $189,964 $152,411
======== ========
Occupied % 100% 93%
Partnership Ownership % 42.8% 42.7%
Cash Distribution to Partnership $119,544 $ 91,957
Net Income allocated to the
Partnership $ 83,581 $ 64,835
</TABLE>
Rental income, management and leasing expenses, net income and cash
distributions increased in 1999, as compared to 1998, due primarily to
increased occupancy and lease renewals.
The Partnership's ownership interest in the Fund III - Fund IV Joint
Venture increased in 1999, as compared to 1998, due to additional fundings
by the Partnership, which decreased Wells Fund III's ownership in the Fund
III - Fund IV Joint Venture.
13
<PAGE>
The G.E. Building/Richmond / Fund III - Fund IV Joint Venture
-------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended
------------------
March 31, 1999 March 31, 1998
-------------- --------------
<S> <C> <C>
Revenues:
Rental Income $131,856 $131,856
-------- --------
Expenses:
Depreciation 49,059 49,053
Management & leasing expenses 10,095 10,014
Other operating expenses 1,245 15,455
-------- --------
60,399 74,522
-------- --------
Net income $ 71,457 $ 57,334
======== ========
Occupied % 100% 100%
Partnership Ownership % 42.8% 42.7%
Cash Distribution to Partnership $ 54,284 $ 47,101
Net Income allocated to the Partnership $ 32,950 $ 24,472
</TABLE>
Rental income has remained constant for 1999 and 1998. Net income and cash
distributions generated from the G.E. Building increased in the first
quarter of 1999, as compared to the same period for 1998, due primarily to a
decrease in expenses resulting from an extraordinary roof repair in 1998.
The Partnership's ownership in the Fund III - Fund IV Joint Venture
increased in 1999, as compared to 1998, due to additional fundings by the
Partnership, which increased the Partnership's ownership in the Fund III -
Fund IV Joint Venture and decreased Wells Fund III's ownership.
14
<PAGE>
PART II - OTHER INFORMATION
Item 6(b). No reports on Form 8-K were filed during the first quarter of
1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WELLS REAL ESTATE FUND IV, L.P.
(Registrant)
Dated: May 11, 1999 By: /s/Leo F. Wells, III
--------------------
Leo F. Wells, III, as Individual General
Partner and as President, Sole Director and Chief
Financial Officer of Wells Capital,
Inc., the General Partner of Wells Partners, L.P.
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 108,077
<SECURITIES> 9,767,512
<RECEIVABLES> 263,395
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,138,984
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 10,138,984
<CURRENT-LIABILITIES> 312,645
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 9,826,339
<TOTAL-LIABILITY-AND-EQUITY> 10,138,984
<SALES> 175,731
<TOTAL-REVENUES> 177,358
<CGS> 28,310
<TOTAL-COSTS> 28,310
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 149,048
<INCOME-TAX> 149,048
<INCOME-CONTINUING> 149,048
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 149,048
<EPS-PRIMARY> .11
<EPS-DILUTED> 0
</TABLE>
